ECB confident UK will sign up to settlement plan

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By Huw Jones
LONDON, July 6 (Reuters) – The European Central Bank expects the Bank of England to join its stock and bond settlement project and bring down costs for investors even further, ECB Executive Board member Gertrude Tumpel-Gugerell said. The ECB wants to launch Target 2 Securities in 2013 as a one-stop shop settlement service for securities trades. It aims to cut costs significantly by replacing a patchwork of national settlement systems that make settlement of cross-border transactions particularly costly.
The ECB wants to widen the scope of the project from the euro zone to include trades denominated in sterling. Britain is Europe’s biggest share trading centre and its inclusion would substantially increase economies of scale and push down tariffs.
“We will have very intensive and useful discussions with the Bank of England. I am confident we will find a solution,” Tumpel-Gugerell told reporters. “At the end of this year, the cost savings will be updated.”
The Bank of England said last month it would not be happy joining a T2S that is under the ultimate control of the ECB’s Governing Council as Britain is outside the euro zone.
Governance should reflect the share of each currency and a clearer idea of settlement costs in sterling was needed, the UK central bank said in a letter made public.
“We are very open about the type of services and governance we have. It’s very transparent. We should now put priority on completing it on time. It’s well accepted by all market participants,” Tumpel-Gugerell said.
The ECB said in a response to the Bank of England earlier this month that its concerns will be thoroughly addressed.
“I am confident that it should be possible to find an adequate solution to the issues you raise in your letter, for the general benefit of the European financial markets,” Tumpel-Gugerell said in her letter.
The project was progressing well with 15 of the euro zone’s 16 national central securities depositories now on board, she told reporters. Slovenia was still holding back.
The 15 will sign a memorandum of understanding on July 16 agreeing to commit themselves more deeply to T2S, with a binding contract signed in the first half of 2010, Tumpel-Gugerell said.
Cost savings would take a bit longer without the Bank of England’s participation, she added.
T2S will be operated as a not-for profit utility with users having an influence over its running, she added. It was undecided whether it would be run at arm’s length from the ECB.
The ECB also supports efforts by the European Commission to promote clearing of off-exchange traded derivatives but the scope of 200 million euro T2S project will not be extended to include that sector.